Bitcoin, the world’s largest cryptocurrency by market capitalization, fell 2.02% and was trading at 75,064.20 at 13:46 (Saudi Arabia time), declining after Iran closed the Strait of Hormuz, triggering a wider risk aversion in financial markets.
The digital asset, often described as digital gold, has failed to maintain its appeal as a safe haven during this period of uncertainty, leading to wider sell-offs in the cryptocurrency market as investors rush to reassess their portfolio exposure.
Geopolitical headwinds and institutional flows
The decline in Bitcoin is directly linked to the escalating conflict in the Middle East. As global markets react to the renewed closure of the Strait of Hormuz and growing fears of a wider regional conflagration, investors have increasingly withdrawn capital from speculative and volatile asset classes.
Despite concerns at the macro level, market data reveals a more accurate picture regarding institutional appetite. Bitcoin exchange-traded funds (ETFs) recently attracted $663.91 million, pushing the sector's total net assets above the $100 billion mark.
Meanwhile, Ether exchange-traded funds added $127.49 million, marking seven consecutive days of inflows and indicating steady growth in institutional demand.
The broader participation of funds also remained evident, with XRP gaining inflows of $13.74 million and Solana attracting $13.04 million, confirming continued interest across various cryptocurrency exchange-traded funds.
Developments in the sector are exacerbating the decline.
Aside from the immediate geopolitical shock, structural headwinds within the digital asset system have converged to dampen investor enthusiasm.
Recent reports from The Block highlight the ongoing regulatory uncertainty surrounding decentralized finance (DeFi) protocols, which has cooled interest in the broader ecosystems of Ethereum and Solana.
Regulatory uncertainty creates a negative feedback loop that indirectly affects the price of Bitcoin as investors adopt a more cautious, wait-and-see approach.
The cautious sentiment is further exacerbated by weak market conditions. Data from CoinMarketCap shows a significant decline in stablecoin liquidity across major centralized exchanges.
Weak order books often amplify downward price volatility, leaving the leading cryptocurrency more vulnerable to forced liquidations during periods of extreme market anxiety.
Finally, persistent inflation data and fluctuating interest rate expectations, as Bloomberg has pointed out, continue to act as a major drag.
Returns on risk-free assets remain high, and the opportunity cost of holding non-yielding assets like Bitcoin is rising, further discouraging the strong accumulation that previously fueled its rise.
Cryptocurrency prices today: Altcoins fall after Strait closure
Alternative currencies also saw notable declines following Iran's announcement.
Ethereum, the world's second-largest cryptocurrency, fell 2.89% to $2,307.42.
The world's third-largest cryptocurrency, XRP, fell 2.12% to $1.4198.
Solana and Cardano fell by 3.40% and 3.54% respectively.
